Analysis: Italy's insurance holes expose state finances to disasters

Revo Insurance SpA

29/06/2023 07:00

By Alessandro Parodi, Alberto Chiumento and Andrea Mandala
       June 29 (Reuters) - Lamberto Mongardi, a farm owner in
the northern Italian town of Lugo, was hit twice when torrential
rain lashed the area last month: not only was much of his
property washed away, but he also discovered his insurance cover
excluded damage from floods.
    Mongardi's story is commonplace in Italy and is one reason
many people don't bother insuring their property at all, relying
on the state to pick up the tab when disasters strike, with a
heavy toll on Rome's strained public finances.
    "I trusted the person who organised my insurance," Mongardi
said, only to find that the lack of protection against floods
and earthquakes was hidden in the small print of his contract.
He is left wondering what his policy actually covers, he added.
    Between 1980 and 2020 only 5% of losses from climate-related
catastrophes were insured in Italy, against a European average
of 27%, according to the European Central Bank.
    "Under-insurance is evident," said the sector watchdog
IVASS, citing bureaucratic complexities, the high cost of cover,
and a preponderance of small businesses that prefer to take a
risk rather than increase their outlays.
    Compensating people hit by Italy's frequent earthquakes,
landslides and floods is a considerable burden for a country
with the euro zone's second-largest debt load, and crimps
resources available for other things.
    Earthquakes in central Italy in 2009 and 2016 cost public
accounts more than 30 billion euros ($33 billion), around 1.7%
of national output.
In response to May's floods in Emilia Romagna that killed 15
people, Prime Minister Giorgia Meloni allotted 1.5 billion euros
for the area and topped up a 490-million euro national fund to
tackle natural disasters with an additional 200 million.
    "We have to overcome the reluctance of firms and families to
take out insurance against natural calamities," said Industry
Minister Adolfo Urso. The government is working on financial
incentives to encourage it, he added.
     In March 2022 just 5% of households were covered against
natural disasters, according to insurance association ANIA.
     
    'VULNERABLE TO EVERYTHING'
    Rising temperatures make the problem more urgent.
    "Climate-driven catastrophes in Italy will become more
frequent and more intense," said climatologist Luca Mercalli.
    "We are vulnerable to everything, from forest fires to
melting glaciers on our mountains and rising sea levels along
our 8,000 kilometres (5,000 miles) of coastline."
    Massimiliano Giansanti, the head of farmers' association
Confagricoltura, said the group was trying to instill an
"insurance culture", and had lobbied for it to be mandatory for
farmers to take out cover in order to obtain European Union
subsidies.
    "Unfortunately our calls went unheeded," he said.
Elsewhere in Europe, and even more so in the United States, more
private insurance means less burden on the public purse.
    In Britain and Spain, for example, house buyers need
comprehensive buildings insurance to obtain a mortgage. In
France all home owners must take out a policy.
     In 2021 just 10.5% of Italian farm lands were insured, the
sector watchdog IVASS said. In the same year the crop coverage
level in the United States reached an all-time high of 74%,
according to the Department of Agriculture.
    Many Italians blame insurance companies, saying miserly
payouts are not worth the premiums.
     "In 2014 my farmland was hit by floods but I got very
little from the insurance so I decided to cancel my policy,"
said Andrea Ferri, a farmer from Imola in Emilia Romagna whose
fields were spared by this year's flooding.
     
    'CULTURAL PROBLEM'
    Insurers say the growing frequency of climate-related events
makes it more complex and expensive to assess risks and costs.
    They point out that few people take out cover and those that
do are mainly in high-risk situations. This creates a vicious
circle of less revenue and more risk for insurers, forcing them
to hike premiums, which deters others from insuring.
    "In Italy insurance is seen as a tax, especially by small
firms," said Simone Lazzaro, the chief underwriting officer at
Verona-based insurer REVO  REVOI.MI . "It's a cultural problem."
    Other countries have found their own solutions.
    In Britain, where the main natural disaster is flooding,
people who live in flood-risk areas in houses built before 2009
get a subsidy on their insurance thanks to a re-insurance scheme
called Flood Re, launched in 2016.
The reinsurance is part-funded by a levy on all buildings
insurance sold in Britain, which raises 135 million pounds ($172
million) per year.
    In Spain, a similar scheme has been in place since 1941 as a
backstop for insurers in cases of natural disasters, but only
for people who already have a policy of their own.
    The fund, which amounts to some 9 billion euros, is financed
by a surcharge on each private insurance policy.
    Italy's insurance body ANIA said it hoped to see "the
creation of a partnership between the private and public
sectors, as we see in many European countries".
    ($1 = 0.9140 euros)
    ($1 = 0.7846 pounds)

 (Additional reporting by Gavin Jones, Alvise Armellini, Belen
Carreno, David Milliken, Leigh Thomas, Maria Martinez and Elisa
Anzolin
Editing by Gavin Jones and Mark Potter)
 ((mailto:Alessandro.Parodi@thomsonreuters.com;))